My Dad and I were discussing how to fill out your W4 form last night and I mentioned that I currently am listed as M1 on my W4. He is listed as S1 on his. His reasoning behind this is that if your listed as S1 the government takes out more tax from your paycheck and you get a larger return when you file your tax return. I stated that one way or another the government is going to get their money ,so i suggested being listed as M1 on my W4 was smarter becasue you can invest that extra income and gain interest off of it. The key to this method is actually putting the money away and not spending it, but am i correct in thinking this way or is my dad right?

Either one is right really.

Personally, I concur with you, and would rather write the feds a check in April as I will be again this year, $49 to be exact In reality in today's rate environment, you will nto make a hill of beans on interest on that money, but it is your money, so why should you have to wait to have it to do as you please?

I know others who cannot save, and your dad's way is a forced savings plan for them, and they like getting a nice big chuck of cash each spring. They use this to pay off christmas bills, take a vacation, deposit it into their IRA, etc...

You are correct though, either way you do it, you are still paying the feds the same in the long run.

That's what I figured, and you're right with the economy the way it is its hard to find an investment vehicle that gives you a solid return but the more money I put in the better the return so i'll stick with my way for now.

You're giving the government an interest free loan when you overpay your taxes. I'd rather get as much money as I can up front rather than relying on the government to give it back to me!

Qunicy and New Yorky - agreed that I would rather owe than be owed...but you're wrong on the rate of return. Many mutual funds paid returns of over 50% this year, and have averaged over a 9% return for 10+ years...

Now, if you're just putting it in a passbook savings, that is another story...

Well The stock market hit bottom in March 09 and has recovered extremely well since that bottom so, im sure many mutual funds had a gain of 50-60% for the year and some even more, but that doesnt factor in the drop on September of 2008. Factoring in the drop in 08 the market has only retraced 30-40%, so my fund in total would still be lower than it was in August of 08. I see your point Happy and I agree somewhat with you but I am definitely not ready to get back into a Vanguard fund or any market account just yet.

I've got mine in a high yield savings with ING Direct. The interest has gone down but it is still paying out more than an average savings account and more than some CD's.

I also have an ING account, but 1.25% is still not much of a return

That is why I stated interest, and not dividends.
Also, I was speaking to generalitites, not specific investment vehicles. I'll be sure to be more clear in the future.

My goal every year is to break even, or as close to it as I can. I never get a huge refund and if I have to pay, it's very little. I want all my money in my paycheck. We're a one income family, and we need all the income we can get on an ongoing basis. A nice chunk of money once a year is nice, but is not really going to help me with my monthly budget.

And, as soon as my other house sells, I will be able to put away some decent money back into savings. Can't wait for that to happen!

I have the maximum taken out of mine because my husband is basically contractor based and has nothing taken out so it helps offset his huge payment at tax time. We still end up paying though but it helps so we don't have to pay as much.

The only real important thing is to make sure that you don't under-withhold and then subject yourself to a tax penalty. Whether you get a big tax refund or cut it close and invest or use the money during the course of the year is really just a matter of preference.